A2M shares are moving up on ASX; Here’s why

On 29 August 2022, The a2 Milk Company (ASX: A2M) shares are trading up on ASX following the release of FY2022 and the announcement of NZ$150 million on-market share buyback. It continue to move up on the next day of the announcement. On 30 August 2022, at AEST 12:13 PM, A2M shares are trading at AU$5.530, up 2.407% from the previous close. 

The a2 Milk Company is a premium branded company focusing on products containing the A2 beta-casein protein type. The Company has products and trading activities in New Zealand, Australia, Greater China, North America, and a collection of emerging markets. The Company aims to ensure that it creates long-term, lasting value for shareholders via a trusted, transparent association.

This article will look at the factors driving its shares on ASX today.

FY022 Results:

A2M delivered solid FY2022 results and reported a 19.8% growth in its revenue, driven by robust growth in the China & Other Asia and USA segments, as well as incremental sales from the first-time inclusion of MVM. This was partially offset by lower IMF sales in ANZ due to deliberate modifications to the Company’s English label IMF route-to-market structure, resulting in a move in sales towards the China & Other Asia segment. The growth in revenue in 2H FY2022 reflects the steps taken by A2M in 2H FY2021 and 1H FY2022 to address excess IMF channel inventory, execution of A2M’s growth strategy, robust China label IMF consumer demand in part due to COVID-19 related lockdowns, as well as pricing and favourable foreign exchange.

Financial Highlights:

1. EBITDA increased 59% to NZ$196.2 million.

1. NPAT, including amounts attributable to non-controlling interests, grew 42.3% to NZ$114.7 million.
2. EPS increased 51.8% to NZ 16.5 cents.
3. The Company had a solid balance sheet by the closure of FY2022 and had net cash of NZ$816.5 million by the end of 30 June 2022.

Some Key Developments in FY2022:

1. Brand health metrics attained new highs across the business, with total A2M IMF spontaneous brand awareness in China growing substantially from 16% to 21%, subsequent to a 36.3% surge in marketing investment.
2. It made significant progress in marketing investment. It helped the Company to gain in brand health metrics and supported A2M to achieve record market shares delivering solid growth in its China infant milk formula business.
3. A2M transitioned its English label product distribution to clearer, performance-based, and exclusive partners.
4. A2M maintained its brand leadership in liquid milk in Australia. It noted that its USA milk business grew strongly during FY2022, fuelled by innovation.

On-market share buyback of NZ$150 million

Apart from announcing a strong FY2022 result, A2M also announced an on-market share buyback of NZ$150 million, expected to commence towards the closure of September 2022 and will run up to 12 months.

The Company will be acquiring shares of the Company from NZX and ASX at the existing price of the shares from time to time during the 12 month time frame. The buyback program will be for a maximum aggregate of NZ$150 million in the purchase price and up to a maximum of 37,180,621 shares.

The buyback program reflects A2M’s effective capital management and its improved confidence in its strategy, execution, and outlook.

FY2023 Outlook:

1. China label IMF sales are likely to be up in FY2023, with a substantial rise in sales in 1HFY2023 compared to 1HFY2022.
2. A2M expects revenue growth in China label IMF, English label IMF and USA liquid milk in FY2023.
3. The gross margin percentage in FY2023 is likely to be consistent with FY2022.
4. In FY2023, the Company aims further brand investment, skewed slightly towards 1HFY2023 with a substantial uplift compared to 1HFY22 because of campaign timing.
5. Further lift in SG&A costs is planned in FY2023.
6. EBITDA growth is anticipated in FY2023 with a modest enhancement in EBITDA margin.
7. Operational cash conversion is expected to be significantly lower in FY2023 than in FY2022, mainly due to the reversal of working capital timing benefits in FY2022 and a surge in inventory levels.

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